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Mobile phone industry seeks lowering of GST on phones, parts

Mobile phone industry seeks lowering of GST on phones, parts
Photo Credit: Pexels

Mobile phone sellers in India have sought a revision of GST applied to mobile phones in the country. In a letter to various state and chief ministers, the India Cellular and Electronics Association (ICEA) has asked for GST rates on mobile phones to be brought down to 12%, and on parts and components to 5%.

The industry body has also published a report on the impact of GST on the sector. In the report, it said the industry is in a "state of shock" due to the government's decision to apply 18% GST on mobile phones last year. The ICEA counts companies like Apple, Foxconn, Xiaomi and many more among its members. 

This is not the first time that the industry has raised this concern. The Indian government increased the GST on mobile phones from 12% to 18% in April 2020, which led to an increase of 5-10% in the prices of some smartphones. “GST increase for phones from 12% to 18% will crumble the industry,” tweeted Manu Jain, Managing Director, Xiaomi India, at the time.

Pankaj Mohindroo, chairman of the India Cellular and Electronics Association (ICEA), said that demand has been “stymied” with the GST hike. According to the ICEA report, the rate should ideally be 5%, but should have never exceeded 12% in the first place. “The Government has realised the importance of mobile phones in developing the Digital Agenda. The rates for mobile phones and parts must be rationalised, and as highlighted in this report, brought back to 12% on the mobile phones and simultaneously removing the inverted duty structure,” said Bipin Sapra, Partner, EY.

Mohindroo said that at around 2017, in the pre-VAT era, the tax on mobile phones in states like Bihar was 5%. In the GST era, the tax on a thousand-rupee smartphone has increased from Rs. 50 to Rs. 180, he said, which is about 10% of the phone’s price. “These are very price sensitive segments. So Rs. 130 (additional amount as tax) makes a huge impact on the person. The biggest impact has been the churn, i.e, the transition to smartphones,” he added.

Further, the report also said that an “unintended consequence” of the move from the old to the new tax regime was that it did not provide “any incentivization to manufacturers in the country”. “In an ideal scenario, since manufacturing activities contribute to higher economic growth through local value addition, employment of workforce, availment of support services etc., the tariffs shall be designed in such a way as to provide inherent advantage and cost competitiveness to domestic manufacturers vis-a-vis traders,” the report said.

Mobile phone makers have also had to increase the prices of devices due to ongoing supply constraints and a shortage of chips. According to data from the International Data Corporation (IDC), the smartphone market in India registered a dip of 12% in the quarter ended September 2021, shipping 48 million units. The firm said this dip was due to pent-up demand during the same quarter in 2020, and the global shortage of chips and supply constraints plaguing the industry. 

Market leader Xiaomi hiked the price of its budget Redmi 9A and Redmi 9A Sport smartphones last week, by about 5%, and said that it had to do so because of a massive demand supply gap.